Dealmaking in frontier markets: Mongolia
Amid sluggish growth and a tough climate for dealmaking in developed markets, investment banks are turning to new territories to do deals with Mongolia one of the fastest-growing frontier markets.
Bankers have been busy in emerging markets so far this year. The total value of M&A transactions in the materials sector alone done in emerging markets this year is $100bn, accounting for 41% of overall materials M&A, according to data from Thomson Reuters.
And although the performance of stocks in the MSCI Frontier Market Index has been broadly in line with that of the MSCI World Index, the potential for growth in far-flung locations continues to be high.
In a five-part series, which we shall run throughout this week, we look at how to successfully handle a transaction in five separate frontier markets where growth is forecast to increase by at least 4% or more this year. Today, we look at Mongolia.
Each country we look at is a constituent of Standard & Poor's Frontier BMI index, with the exception of Mongolia, which is not currently included on any index.
Why Mongolia matters
Perfectly placed between two commodity hungry superpowers, Mongolia is a nation rich in natural resources, including some of the largest coal deposits on the planet.
Although it is not a constituent of any of the major frontier or emerging market indices, Mongolia was earlier this year named in a new list drawn up by analysts at Citigroup.
It listed the country, along with 10 others, as a Global Growth Generator - or 3G for short - where the highest levels of growth in the world will be seen over the next 40 years.
According to the IMF, the Mongolian economy is forecast to grow by 9.8% this year and 7.1% in 2012.
Mongolia is rated more highly than Italy as a destination for doing business, according to a World Bank report, with the land of Genghis Khan coming seven places above the European country at number 73 in the world.
Biggest deals this year
The $950m acquisition of QGX Coal by the Mongolian Mining Corporation is the biggest acquisition in the country so far this year. UBS and Citi advised on the deal.
Anglo-Australian mining giant Rio Tinto recently purchased a C$529.5m stake in Ivanhoe Mines, a Canadian-listed company with significant interest in assets in Mongolia. The two companies are jointly developing the massive Oyu Tolgoi copper and gold project in the country.
The total value of mergers and acquisitions deals announced so far this year is $1.3bn through 31 transactions, according to data provider Dealogic.
What's the outlook?
The country’s massive Erdenes Tavan Tolgoi mining project in the Gobi desert in southern Mongolia recently began exporting coal to China and several new opportunities could arise from the project in future.
Thought to be the biggest untapped source of coking coal in the world, the mine has attracted the attention of several overseas investment banks and mining firms.
Goldman Sachs and Deutsche Bank recently won a mandate to manage an initial public offering of Erdenes Tavan Tolgoi for the Mongolian government. The share sale is due to be launched in the first half of 2012 and is expected to raise anywhere between $1bn and $5bn. The government could still appoint one or two more banks to handle the process.
The outlook for deals is likely to strengthen further still, according to Rupert Hume-Kendall, chairman of global capital markets at Bank of America Merrill Lynch.
He said: “Mongolia's mineral and energy resources sector will continue to open up rapidly to equity and debt capital markets globally. The pace will be quite unusual.”
Who’s already there?
Dutch bank ING celebrates its third anniversary in Mongolia this month, it is the first and only foreign bank to have a presence in the country. PricewaterhouseCoopers and Hogan Lovells are also present in the country. Many bankers also fly into the capital Ulan Bator from bases in either London or Hong Kong.
Earlier this year, several international banks flew representatives in to pitch for the Erdenes Tavan Tolgoi IPO, including Morgan Stanley, Macquarie, Citigroup, JP Morgan, Deutsche Bank, Credit Suisse and UBS.
The London Stock Exchange set up a joint venture with the Mongolian Stock Exchange earlier this year in a deal that will see the MSE use the LSE’s MilleniumIT trading technology.
Kh Altai, chief executive of the Mongolian Stock Exchange, recently visited London with a delegation of corporates from the country to discuss listing opportunities and international deals.
He said: “Mongolia itself is changing rapidly. It’s one of the fastest growing economies in the world. We have this extensive mineral wealth, lots of investment for geological extraction.
"As capital market, as a stock exchange, we have to be prepared for that and in order to prepare for that we have joined up with the LSE.”
He added: “Our resources mean there are a lot of things to be done for bankers, lawyers and other global players.”
Deal-making tips and stories from the frontier
Many of Mongolia’s assets are owned by the state, meaning dealmakers have to engage with many different officials, from local mayors to ministers of state.
Mongolia is an incredibly hospitable country, so be prepared to get up close and personal with your hosts. Do your research before you go, find out about the Mongolian culture and what is expected of foreign visitors. Take your time in building relationships with clients and do as much as possible to accommodate their culture when you visit the country.
Be prepared to go to a lot of banquets, where you’ll perhaps eat some strange food. Brendan Spinks, Director in ECM origination CEMEA at HSBC, said: “It’s very important to research the local culture before you go. Not only does it make you feel better by not looking a fool but it gives the client a bit of reassurance that you’re not just there to do one job.”
The temperature can drop to levels well below freezing in Mongolia during the winter, making it hard to pack for a trip, according to Rupert Hume-Kendall.
He said: “Earlier this year I had an unusual excursion. First stop was Ulan Bator with temperatures of -40c. Next was on to Bangkok in the middle of the Thai summer at +35c, both for critical pitches. Try packing for that with a single small bag!”
-- Write to Richard Partington at richard.partington@dowjones.com
Bankers have been busy in emerging markets so far this year. The total value of M&A transactions in the materials sector alone done in emerging markets this year is $100bn, accounting for 41% of overall materials M&A, according to data from Thomson Reuters.
And although the performance of stocks in the MSCI Frontier Market Index has been broadly in line with that of the MSCI World Index, the potential for growth in far-flung locations continues to be high.
In a five-part series, which we shall run throughout this week, we look at how to successfully handle a transaction in five separate frontier markets where growth is forecast to increase by at least 4% or more this year. Today, we look at Mongolia.
Each country we look at is a constituent of Standard & Poor's Frontier BMI index, with the exception of Mongolia, which is not currently included on any index.
Why Mongolia matters
Perfectly placed between two commodity hungry superpowers, Mongolia is a nation rich in natural resources, including some of the largest coal deposits on the planet.
Although it is not a constituent of any of the major frontier or emerging market indices, Mongolia was earlier this year named in a new list drawn up by analysts at Citigroup.
It listed the country, along with 10 others, as a Global Growth Generator - or 3G for short - where the highest levels of growth in the world will be seen over the next 40 years.
According to the IMF, the Mongolian economy is forecast to grow by 9.8% this year and 7.1% in 2012.
Mongolia is rated more highly than Italy as a destination for doing business, according to a World Bank report, with the land of Genghis Khan coming seven places above the European country at number 73 in the world.
Biggest deals this year
The $950m acquisition of QGX Coal by the Mongolian Mining Corporation is the biggest acquisition in the country so far this year. UBS and Citi advised on the deal.
Anglo-Australian mining giant Rio Tinto recently purchased a C$529.5m stake in Ivanhoe Mines, a Canadian-listed company with significant interest in assets in Mongolia. The two companies are jointly developing the massive Oyu Tolgoi copper and gold project in the country.
The total value of mergers and acquisitions deals announced so far this year is $1.3bn through 31 transactions, according to data provider Dealogic.
What's the outlook?
The country’s massive Erdenes Tavan Tolgoi mining project in the Gobi desert in southern Mongolia recently began exporting coal to China and several new opportunities could arise from the project in future.
Thought to be the biggest untapped source of coking coal in the world, the mine has attracted the attention of several overseas investment banks and mining firms.
Goldman Sachs and Deutsche Bank recently won a mandate to manage an initial public offering of Erdenes Tavan Tolgoi for the Mongolian government. The share sale is due to be launched in the first half of 2012 and is expected to raise anywhere between $1bn and $5bn. The government could still appoint one or two more banks to handle the process.
The outlook for deals is likely to strengthen further still, according to Rupert Hume-Kendall, chairman of global capital markets at Bank of America Merrill Lynch.
He said: “Mongolia's mineral and energy resources sector will continue to open up rapidly to equity and debt capital markets globally. The pace will be quite unusual.”
Who’s already there?
Dutch bank ING celebrates its third anniversary in Mongolia this month, it is the first and only foreign bank to have a presence in the country. PricewaterhouseCoopers and Hogan Lovells are also present in the country. Many bankers also fly into the capital Ulan Bator from bases in either London or Hong Kong.
Earlier this year, several international banks flew representatives in to pitch for the Erdenes Tavan Tolgoi IPO, including Morgan Stanley, Macquarie, Citigroup, JP Morgan, Deutsche Bank, Credit Suisse and UBS.
The London Stock Exchange set up a joint venture with the Mongolian Stock Exchange earlier this year in a deal that will see the MSE use the LSE’s MilleniumIT trading technology.
Kh Altai, chief executive of the Mongolian Stock Exchange, recently visited London with a delegation of corporates from the country to discuss listing opportunities and international deals.
He said: “Mongolia itself is changing rapidly. It’s one of the fastest growing economies in the world. We have this extensive mineral wealth, lots of investment for geological extraction.
"As capital market, as a stock exchange, we have to be prepared for that and in order to prepare for that we have joined up with the LSE.”
He added: “Our resources mean there are a lot of things to be done for bankers, lawyers and other global players.”
Deal-making tips and stories from the frontier
Many of Mongolia’s assets are owned by the state, meaning dealmakers have to engage with many different officials, from local mayors to ministers of state.
Mongolia is an incredibly hospitable country, so be prepared to get up close and personal with your hosts. Do your research before you go, find out about the Mongolian culture and what is expected of foreign visitors. Take your time in building relationships with clients and do as much as possible to accommodate their culture when you visit the country.
Be prepared to go to a lot of banquets, where you’ll perhaps eat some strange food. Brendan Spinks, Director in ECM origination CEMEA at HSBC, said: “It’s very important to research the local culture before you go. Not only does it make you feel better by not looking a fool but it gives the client a bit of reassurance that you’re not just there to do one job.”
The temperature can drop to levels well below freezing in Mongolia during the winter, making it hard to pack for a trip, according to Rupert Hume-Kendall.
He said: “Earlier this year I had an unusual excursion. First stop was Ulan Bator with temperatures of -40c. Next was on to Bangkok in the middle of the Thai summer at +35c, both for critical pitches. Try packing for that with a single small bag!”
-- Write to Richard Partington at richard.partington@dowjones.com
Comments
Post a Comment